Bank of Marin Bancorp: Form 10-Q for the period ended Jun 30, 2026

Management's discussion of the financial condition and results of operations, which is unaudited, should be read in conjunction with the related unaudited consolidated interim financial statements in this Form 10-Q and with the audited consolidated financial statements and accompanying notes included in our 2025 Annual Report on Form 10-K. Average balances, including balances used in calculating certain financial ratios, are generally comprised of average daily balances.

Forward-Looking Statements

The discussion of financial results in this Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "1933 Act") and Section 21E of the Securities Exchange Act of 1934, as amended, (the "1934 Act"). Those sections of the 1933 Act and 1934 Act provide a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their financial performance so long as they provide meaningful, cautionary statements identifying important factors that could cause actual results to differ significantly from projected results.

Our forward-looking statements include descriptions of plans or objectives of management for future operations, products or services, and forecasts of revenues, earnings or other measures of economic performance. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words "believe," "expect," "intend," "estimate" or words of similar meaning, or future or conditional verbs preceded by "will," "would," "should," "could" or "may."

Forward-looking statements are based on management's current expectations regarding economic, legislative, and regulatory issues that may impact Bancorp's earnings in future periods. Factors that could cause future results to vary materially from current management expectations include, but are not limited to, general economic conditions and the economic uncertainty in the United States and abroad, including economic or other disruptions to financial markets, acts of terrorism, war or other conflicts, impacts from inflation, supply chain disruptions, changes in interest rates (including the actions taken by the Federal Reserve to control inflation), California's unemployment rate, deposit flows, real estate values, and expected future cash flows on loans and securities; the impact of adverse developments at other banks, including bank failures, that impact general sentiment regarding the stability and liquidity of banks; costs or effects of acquisitions; competition; changes in accounting principles, policies or guidelines; changes in legislation or regulation; natural disasters (such as wildfires and earthquakes in our area); adverse weather conditions; interruptions of utility service in our markets for sustained periods; and other economic, competitive, governmental, regulatory and technological factors (including external fraud and cybersecurity threats) affecting our operations, pricing, products and services; and successful integration of acquisitions.

Important factors that could cause results or performance to differ materially from those expressed in our prior forward-looking statements are detailed in ITEM 1A, Risk Factors section of our 2025 Form 10-K as filed with the SEC, and ITEM 1A Risk Factors herein. Forward-looking statements speak only as of the date they are made. Bancorp undertakes no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events.

Critical Accounting Estimates

Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation and uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. We consider accounting estimates to be critical to our financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain, (ii) management could have applied different assumptions during the reported period, and (iii) changes in the accounting estimate are reasonably likely to occur in the future and could have a material impact on our financial statements. Our critical estimates include: Allowance for Credit Losses on Loans and Unfunded Commitments, and Fair Value Measurements. Refer to Critical Accounting Estimates in Item 7 of our 2025 Form 10-K for more information.

Page-29

Executive Summary

Net income for the second quarter of 2026 was $9.2 million, compared to net income of $8.5 million for the prior quarter. Diluted earnings per share was $0.58 for the second quarter of 2026, compared to $0.53 for the prior quarter. Net income for the six months ended June 30, 2026 was $17.8 million, compared to a net loss of $3.7 million for the same period in the prior year. Diluted earnings per share for the six months ended June 30, 2026 was $1.11, compared to diluted loss per share of $0.23 for the same period in the prior year. On a non-GAAP basis, excluding the losses on sale of securities of $13.2 million net of taxes, diluted earnings per share was $0.60 for the same period in the prior year.

Comparable (non-GAAP) Excluding Loss on Sale of Securities

(in thousands, except per share amounts; unaudited)

The following are highlights of our operating and financial performance for the periods presented. Additional performance details can be found on the pages that follow.

• The tax-equivalent net interest margin increased to 3.38% in the second quarter of 2026 from 3.24% in the prior quarter, an improvement of 14 basis points. The increase is mostly explained by an eight basis point increase in loan yields, a seven basis point decrease in the cost of deposits, and the use of one-way sales of deposits, which improved the mix of average earnings assets, contributing to the decrease in the quarterly cost of deposits. The tax-equivalent net interest margin for the six months ended June 30, 2026 improved 51 basis points over the same period of the prior year due to the favorable impact of the securities repositioned in the second and fourth quarters of 2025, which resulted in higher yielding assets during the six months ended June 30, 2026 as well as higher average loan balances and yields. Also contributing to the improvement was the decrease in cost of deposits of seven basis points.
• The average cost of interest bearing deposits decreased from 2.10% to 2.04% and the average cost of total deposits decreased from 1.35% to 1.28% in the second quarter of 2026 compared to the prior quarter primarily due to targeted rate cuts. The average cost of interest bearing deposits decreased from 2.26% to 2.07% and the average cost of total deposits decreased from 1.39% to 1.32% for the first six months of 2025 compared to 2026. Non-interest bearing deposits continued to make up a strong portion of total deposits at 36.7% as of June 30, 2026 and December 31, 2025.
• Total deposits were $3.370 billion as of June 30, 2026, compared to $3.416 billion as of December 31, 2025, a decrease of $45.6 million. The decrease was primarily attributable to a small number of relationships and reflected seasonal customer activity and investment decisions, rather than broader changes in deposit trends. In addition, seasonal tax-related outflows contributed to the second quarter decrease.
• Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity was $2.177 billion, or 65% of total deposits and 214% of estimated uninsured and/or uncollateralized deposits as of June 30, 2026.

Page-30

• Loans totaled $2.101 billion as of June 30, 2026, a decrease of $19.9 million from December 31, 2025. The decrease was primarily due to the completion of a planned exit of $19.0 million in special mention loans related to one relationship, significantly reducing our exposure to the wine industry. Loan fundings during the second quarter of 2026 were $62.8 million compared to $60.8 million in the prior quarter, and $50.6 million for the second quarter of 2025. Loan fundings during the six months ended June 30, 2026 were $123.6 million compared to $98.0 million in the same period of the prior year.
• During the quarter, we continued working to improve credit quality. Non-accrual loans continued to decline to 0.40% of total loans at June 30, 2026 from 0.41% at March 31, 2026 and 1.27% at December 31, 2025. The ratio of classified to total loans ended the second quarter at 0.95%, compared to 0.85% at March 31, 2026 and 1.51% at December 31, 2025.
• The Bank recorded a reversal of the provision for credit losses on loans of $320 thousand in the six months ended June 30, 2026, compared to a provision for credit losses on loans of $75 thousand in the six months ended June 30, 2025. The allowance for credit losses was 1.07%, 1.08% and 1.42% of total loans at June 30, 2026, March 31, 2026 and December 31, 2025, respectively.

Performance and other financial ratios:

The following table summarizes GAAP and non-GAAP results for return on average assets ("ROA"), return on average equity ("ROE") and the efficiency ratio for comparable periods. All 2025 GAAP ratios were significantly impacted by the securities sales in the second and fourth quarters of 2025. Non-GAAP ratios exclude the loss on sale of securities, with all other factors unchanged. See Reconciliation of GAAP and Non-GAAP Financial Measures below.

Comparable (non-GAAP) Excluding Loss on Sale of Securities

(unaudited)

• Return on average assets ("ROA") and return on average equity ("ROE") for the second quarter was 0.96%, and 9.38%, respectively, and increased on a GAAP basis from the prior quarter primarily due to increased GAAP net income. ROA and ROE for the six months ended June 30, 2026 was 0.91%, and 9.03%, respectively, and increased on a GAAP basis from the same period in the prior year primarily due to increased GAAP net income and the losses on securities sales in the second quarter of 2025, that are reflected in the prior year ROA and ROE. The efficiency ratio on a GAAP basis improved to 63.62% for the second quarter compared to 66.03% for the prior quarter, and was 64.82% for the six months ended June 30, 2026 compared to 112.77% for the same period in the prior year.
• ROA and ROE for the six months ended June 30, 2026 was 0.91%, and 9.03%, respectively, and increased on a non-GAAP basis from the same period in the prior year primarily due to increased non-GAAP net income. The efficiency ratio on a non-GAAP basis, was 64.82% for the six months ended June 30, 2026 and was 74.42% for the same period in the prior year. All GAAP and non-GAAP ratios improved year over year due to the improved investment securities performance post-restructuring, increased loan yields and reduced deposit costs, combined with continued prudent expense management.

Page-31

• Capital was above well-capitalized regulatory thresholds with Bancorp's and the Bank's total risk-based capital ratios of 15.58% and 14.61%, respectively, as of June 30, 2026. Our capital plan and point-in-time capital stress tests indicate that Bank of Marin and Bancorp capital ratios should remain above regulatory well-capitalized and internal policy minimums throughout a five-year forecast horizon and across stress scenarios such as additional unrealized losses on the investment portfolio, additional deposit growth or decline, loan credit quality deterioration, and potential share repurchases.
• Bancorp's tangible common equity to tangible assets ("TCE ratio") was 8.52% as of June 30, 2026, and the Bank's TCE ratio was 9.03%. Bancorp's TCE ratio, net of after-tax unrealized losses on held-to-maturity securities as if the losses were realized1, was 8.26% as of June 30, 2025.
• The Board of Directors declared a cash dividend of $0.25 per share on July 23, 2026, which represents the 85th consecutive quarterly dividend paid by Bancorp. The dividend is payable on August 13, 2026, to shareholders of record at the close of business on August 6, 2026.

1 Refer to the discussion and reconciliation of this non-GAAP financial measure in the section below entitled Statement Regarding Use of Non-GAAP Financial Measures.

Page-32

RESULTS OF OPERATIONS

Highlights of the financial results are presented in the following tables:

(dollars in thousands, except per share data)

(dollars in thousands, except per share data)

Page-33

Net Interest Income

Net interest income is the interest earned on loans, investments and other interest-earning assets minus the interest expense incurred on deposits and other interest-bearing liabilities. Net interest income is impacted by changes in general market interest rates and by changes in the composition of interest-earning assets and interest-bearing liabilities. Interest rate changes can create fluctuations in the net interest income and/or margin due to an imbalance in the timing of repricing and maturity of assets and liabilities. We manage interest rate risk exposure with the goal of minimizing the impact of interest rate volatility on net interest income. For more information, refer to Item 3. Quantitative and Qualitative Disclosure about Market Risk in this Form 10-Q.

Net interest margin is expressed as net interest income divided by average interest-earning assets. Net interest rate spread is the difference between the average rate earned on total interest-earning assets and the average rate incurred on total interest-bearing liabilities. Both of these measures are reported on a taxable-equivalent basis. Net interest margin is the higher of the two because it reflects interest income earned on assets funded with non-interest-bearing sources of funds, which include demand deposits and stockholders’ equity.

Average Statements of Condition and Analysis of Net Interest Income

The following table compares interest income, average interest-earning assets, interest expense, and average interest-bearing liabilities for the periods presented. The tables also present net interest income, net interest margin and net interest rate spread for each period reported.

(dollars in thousands)

Page-34

(in thousands)

Page-35

The following table presents the effects of changes in average balances (volume) or changes in average rates on tax-equivalent net interest income for the periods indicated. Volume variances are equal to the increase or decrease in average balances multiplied by prior period rates. Rate variances are equal to the increase or decrease in rates multiplied by prior period average balances. Mix variances are attributable to the change in yields or rates multiplied by the change in average balances, including one day more in the three months ended June 30, 2026, compared to the three months ended March 31, 2026.

(in thousands)

Second Quarter of 2026 compared to the First Quarter of 2026

Net interest income totaled $30.8 million for the second quarter of 2026, a $479 thousand increase from the prior quarter. This was driven by an eight basis point increase in the average loan yield, combined with a seven basis point decrease in the cost of deposits in the quarter.

The tax-equivalent net interest margin was 3.38% for the second quarter of 2026, compared to 3.24% for the prior quarter. The increase is mostly explained by the increase in average loan yields and the decrease in cost of deposits noted above, and the use of one-way sales of deposits, which improved the mix of average earning assets. The spot rate of deposits at March 31, 2026 of 1.31% dropped to 1.28% at June 30, 2026.

First Six Months of 2026 compared to the First Six Months of 2025

Net interest income totaled $61.1 million for the six months ended June 30, 2026, compared to $49.1 million for the same period in the prior year. The $12.0 million increase from the prior year was primarily due to higher yields in reinvested securities and loans.

The tax-equivalent net interest margin was 3.31% for the six months ended June 30, 2026, compared to 2.80% for the same period in the prior year. The increase of 51 basis points was primarily attributed to the investment securities restructuring performed in both 2024 and 2025 contributing 53 basis points and lower deposit costs and the mix of deposits contributing six basis points, and higher average loan balances and yields. These were partially offset by the impact of the subordinated debt, detracting nine basis points. The spot rate of deposits at June 30, 2025 of 1.29% dropped to 1.28% at June 30, 2026.

Market Interest Rates

Market interest rates are, in part, based on the target federal funds interest rate (the interest rate banks charge each

other for short-term borrowings) implemented by the Federal Reserve Open Market Committee ("FOMC").

Primarily due to declining inflation, the Federal Reserve lowered the target for the federal funds rate by 100 basis points, to a range of 4.25% to 4.50% in the later months of 2024. Following a pause of approximately nine months, the FOMC resumed decreasing rates in September 2025, and made a total of three rate decreases in 2025 ending the year at a range of 3.50% to 3.75%.

Page-36

During the second and fourth quarters of 2025, the Bank sold additional securities with relatively low yields and redeployed the proceeds to further reposition our balance sheet, by investing in higher yielding securities. Management and the Board are continuously monitoring and analyzing the impact of market rates on the Company's financial condition and results of operations to enhance performance, safety and soundness and returns to shareholders. See ITEM 3. Quantitative and Qualitative Disclosure about Market Risk for further information.

Provision for Credit Losses on Loans

Management assesses the adequacy of the allowance for credit losses on loans quarterly based on several factors including growth of the loan portfolio, past events, current conditions, and reasonable and supportable forecasts to estimate expected losses over the contractual terms of our loans. The allowance for credit losses on loans is increased by provisions charged to expense and loss recoveries and decreased by loans charged off.

The following table shows provisions charged to expense during the periods presented.

(dollars in thousands)

We recorded a reversal of the provision for credit losses on loans of $320 thousand in the second quarter of 2026, driven by lower loan balances and improved credit quality in the non-owner occupied commercial real estate portfolio. This compared to no provision in the prior quarter. Non-accrual loans declined during the quarter to $8.5 million, or 0.40% of the loan portfolio, at June 30, 2026, compared to $8.6 million or 0.41% at March 31, 2026, and $26.9 million, or 1.27%, at December 31, 2025.

We recorded a reversal of the provision for credit losses on loans of $320 thousand in the six months ended June 30, 2026, and recorded a provision for credit losses on loans of $75 thousand in the six months ended June 30, 2025.

For more information, refer to Note 5, Loans and Allowance for Credit Losses on Loans, to the consolidated financial statements in this Form 10-Q.

Page-37

Non-interest Income (Loss)

The following table details the components of non-interest income (loss).

(dollars in thousands)

(dollars in thousands)

Second Quarter of 2026 Compared to the First Quarter of 2026

Non-interest income was $3.2 million for the second quarter of 2026, compared to $3.8 million for the prior quarter. The decrease of $665 thousand from the prior quarter was primarily attributable to a decrease in dividend income on FHLB stock of $656 thousand which included the $479 thousand special dividend received in the first quarter. There was also bank owned life insurance death benefits of $479 thousand received in the first quarter, compared to $59 thousand in the second quarter. These were partially offset by the increase in fee income within other income of $377 thousand due to one-way sales of deposits in the quarter.

First Six Months of 2026 Compared to the First Six Months of 2025

Non-interest income was $7.0 million for the first six months ended June 30, 2026, compared to a loss of $12.7 million for the same period of the prior year. The prior year included $18.7 million in pre-tax losses on the sale of investment securities. Excluding those losses, non-interest income increased $1.0 million primarily due to an increase of $317 thousand earned in dividends including a special dividend on Federal Home Loan Bank stock received, an increase of $232 thousand earned on bank-owned life insurance death benefits, and increased fees on one-way sales of deposits of $395 thousand included in other income in 2026.

Page-38

Non-interest Expense

The following table details the components of non-interest expense.

(dollars in thousands)

(dollars in thousands)

Second Quarter of 2026 Compared to the First Quarter of 2026

Non-interest expense totaled $21.6 million for the second quarter of 2026, compared to $22.5 million for the prior quarter, a decrease of $942 thousand. This was primarily due to a decrease of $785 thousand in salaries and related benefits. Expenses decreased due to incentive bonus accruals, 401(k) contribution matching, profit sharing accruals, and stock-based compensation grants that occurred in the first quarter and were not repeated in the second quarter. There were also decreases of $247 thousand in charitable contributions because the majority of annual giving occurs in the first quarter, and $175 thousand in FDIC insurance. This was partially offset by an increase of $278 thousand in professional services expense in the second quarter of 2026 mostly related to audit, operations, compliance, information security and accounting fees.

First Six Months of 2026 Compared to the First Six Months of 2025

Non-interest expense totaled $44.1 million for the first six months ending June 30, 2026, compared to $41.0 million for the same period of 2025, an increase of $3.1 million. This was primarily due to an increase of $1.9 million in salaries and benefits. Expenses increased due to a higher full-time employee count and annual salary increases. There were also increases of $619 thousand in professional services expense and $476 thousand in FDIC insurance in the first six months of 2026.

Page-39

Provision for Income Taxes

Income tax provisions reflect accruals for taxes at the applicable rates for federal income tax and California franchise tax based upon reported pre-tax income. Provisions also reflect permanent differences between income for tax and financial reporting purposes (such as earnings on tax exempt loans and municipal securities, bank-owned life insurance ("BOLI"), low-income housing tax credits, and stock-based compensation from the exercise of stock options, disqualifying dispositions of incentive stock options and vesting of restricted stock awards).

The income tax provision for the second quarter of 2026 totaled $3.4 million at an effective tax rate of 27.0%, compared to a provision of $3.1 million at an effective tax rate of 26.6% in the prior quarter. The increase in the provision for income taxes in the second quarter of 2026 reflected higher pre-tax income as compared to the prior quarter. The increase in the effective tax rate in the second quarter of 2026 was primarily driven by the treatment of certain permanent tax differences, which had a greater proportional effect given the lower pre‑tax income in the prior quarter.

The income tax provision for the first six months of 2026 totaled $6.5 million at an effective tax rate of 26.8%, compared to an income tax benefit of $1.1 million at an effective tax rate of 22.4% for the first six months of 2025. The increase in the provision for incomes taxes and effective tax rate in the first six months of 2026, as compared to the same period a year ago, was primarily due to an increase of $29.0 million in pre-tax income.

On June 27, 2025, Senate Bill 132 (“SB 132”) was passed and signed into law by Governor Newsom. Effective for taxable years beginning on or after January 1, 2025, SB 132 amends California Revenue & Tax Code (“CRTC”) to require financial institutions to apportion income using the single sales factor formula. Prior to this change, these businesses were required by CRTC Sec. 25128(b) to use an evenly weighted three-factor apportionment formula contemplating a payroll factor, property factor, and sales factor. This law does not have a material impact on the company’s tax expense as of June 30, 2026.

On July 4, 2025, the Trump Administration signed and enacted the One Big Beautiful Bill Act ("the Act") into law. Except for certain provisions, the Act is effective for tax years beginning on or after January 1, 2025. The tax and spending legislation permanently extends key business tax breaks originally enacted under the 2017 Tax Cuts and Jobs Act. The company evaluated the impact of the Act on income tax expense, deferred tax assets and liabilities, and related valuation allowances. This law did not have a material impact on the company's tax expense as of June 30, 2026.

We file a consolidated return in the U.S. federal tax jurisdiction and combined returns in the states of California and New Jersey due to interest on purchased auto loans registered in New Jersey. There were no ongoing federal or state income tax examinations at the time of the issuance of this report. As of June 30, 2026, neither the Bank nor Bancorp had accruals for interest or penalties related to unrecognized tax benefits.

Page-40

FINANCIAL CONDITION SUMMARY

Cash, Cash Equivalents and Restricted Cash

Total cash, cash equivalents and restricted cash were $279.6 million at June 30, 2026, an increase of $54.3 million compared to $225.3 million at December 31, 2025, driven by proceeds from paydowns and maturities of investment securities of $137.9 million, loan payoffs and paydowns of $101.8 million, and $40.4 million in amortization of principal, partially offset by $123.6 million in loan fundings, purchases of investment securities of $65.2 million, $45.6 million from net decrease of deposits, and dividends of $8.1 million to shareholders.

Investment Securities

The investment securities portfolio totaled $1.243 billion at June 30, 2026, a decrease of $85.0 million from $1.328 billion at December 31, 2025. The decrease was primarily due to principal repayments and calls/maturities totaling $137.9 million, partially offset by purchases of AFS securities of $65.2 million.

The portfolio is eligible for pledging to FHLB or the Federal Reserve as collateral for borrowing, and is comprised of high credit quality investments with an average effective duration of 2.91. The portfolio generates cash flows monthly from interest, principal amortization and payoffs, which supports the Bank's liquidity. Those cash flows totaled $92.1 million and $73.4 million in the second quarter of 2026 and the first quarter of 2026, respectively. Refer to Note 4, Investment Securities, to the consolidated financial statements in this Form 10-Q.

The following table summarizes our investment in obligations of state and political subdivisions at June 30, 2026 and December 31, 2025.

(dollars in thousands)

Of the total investment in obligations of state and political subdivisions, the largest concentrations outside of California are in Texas (41.4%), Wisconsin (25.4%) and Virginia (7.0%). Our investment in obligations issued by municipal issuers in Texas are either guaranteed by the AAA rated Texas Permanent School Fund ("PSF") or backed by revenue sources from essential services (such as utilities and transportation).

Investments in states, municipalities and political subdivisions are subject to an initial pre-purchase credit assessment and ongoing monitoring. Key considerations include:

• The soundness of a municipality’s budgetary position and stability of its tax revenues
• Debt profile and level of unfunded liabilities, diversity of revenue sources, taxing authority of the issuer
• Local demographics/economics including unemployment data, largest taxpayers and local employers, income indices and home values
• For revenue bonds, the source and strength of revenue for municipal authorities including the obligor’s financial condition and reserve levels, annual debt service and debt coverage ratio, and credit enhancement (such as insurer’s strength and collateral in escrow accounts)
• Credit ratings by major credit rating agencies

Page-41

Loans and Credit Quality

Loans totaled $2.101 billion as of June 30, 2026, compared to $2.121 billion as of December 31, 2025 with a decrease of $19.9 million. See the rollforward of loan balances below.

(in millions; unaudited)

For the six months ending June 30, 2026, loans originated were $178.9 million ($123.6 million funded) compared to $132.8 million ($98.0 million funded) in the same period of the prior year. The second quarter of 2026 originations exceeded both prior quarter and prior year's second quarter.

Payoffs in the six months ended June 30, 2026 were $101.8 million, compared to $59.9 million in the prior year including a significant increase in the second quarter of 2026 mostly related to planned exits and customer asset sales. In addition, net utilization of credit lines increased to $15.1 million during the six months ended June 30, 2026, compared to the net decrease in utilization of credit lines of $6.6 million in the prior year.

There were significant improvements to our credit quality in the first six months of 2026 including non-accrual balances, classified loan balances and past due loan balances. Non-accrual loans declined by $18.4 million during that time to $8.5 million, or 0.40% of total loans, compared to $26.9 million, or 1.27%, at December 31, 2025. The reduction was driven primarily by the sale of two non-owner occupied commercial real estate loans totaling $16.3 million in the first quarter of 2026 with continued payoffs in the second quarter.

Classified loans declined by $12.2 million during the first six months of 2026 to $19.9 million from $32.1 million at December 31, 2025. The improvement was driven primarily by the sale of the two non‑owner occupied commercial real estate loans previously discussed, along with payoffs totaling $2.6 million. These positive trends were partially offset by downgrades totaling $8.0 million into the classified category, $2.2 million of which occurred in the second quarter. The Bank remains disciplined and proactive in our credit management approach with close monitoring and active resolution efforts across the portfolio.

Accruing loans past due 30 to 89 days totaled $2.0 million at June 30, 2026, down from $2.8 million at December 31, 2025.

Loans designated as special mention, which are not considered adversely classified, decreased to $100.9 million at June 30, 2026 compared to $118.0 million at December 31, 2025. The $17.1 million net decrease reflects $22.5 million in payoffs, $12.0 million in upgrades, $5.7 million in downgrades out of the category and $2.0 million in contractual amortization and payoffs, partially offset by $24.6 million that migrated into special mention.

Net charge-offs totaled $7.3 million in the first six months of 2026 compared to $877 thousand in the prior year during the same time period. Approximately $7.2 million of the charge‑offs were related to the two non-accrual loans that were sold in the first quarter of 2026. These charge‑offs were fully offset by specific reserves that were already in place for the two loans.

For more information, refer to Note 5, Loans and Allowance for Credit Losses on Loans, to the consolidated financial statements in this Form 10-Q.

Page-42

Liabilities - Deposits and Borrowings

During the first six months of 2026, total liabilities decreased by $50.1 million to $3.460 billion. Deposits totaled $3.370 billion at June 30, 2026, a decrease of $45.6 million, compared to $3.416 billion at December 31, 2025.

The majority of the decrease in deposits was due to a decrease of $179.8 million in interest bearing transaction accounts, $47.5 million in time accounts and $17.1 million in non-interest bearing deposits, partially offset by an increase of $205.5 million in money market deposits. The decrease was primarily attributable to a small number of relationships and reflected seasonal customer activity and investment policy decisions, rather than broader changes in deposit trends. In addition, seasonal tax-related outflows contributed to the second quarter decrease. Interest bearing transaction accounts decreased while money market accounts increased primarily as a result of the transfer of approximately $170 million in reciprocal deposits during the second quarter. As of June 30, 2026, total one-way sales decreased to zero although the Bank strategically sold an average of $94.7 million during the second quarter which enhanced non-interest income and net interest margin. Non-interest bearing deposits continued to make up a strong 36.7% of total deposits at June 30, 2026, consistent with December 31, 2025.

The Bank had no outstanding short-term borrowings at June 30, 2026 and December 31, 2025. Net available funding sources, including unrestricted cash, unencumbered available-for-sale securities, and total available borrowing capacity was $2.177 billion, or 65% of total deposits and 214% of estimated uninsured and/or uncollateralized deposits as of June 30, 2026.

Capital Adequacy

We are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the minimum capital requirements as set forth in the following tables can trigger certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and the Bank’s prompt corrective action classification are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors.

Management reviews capital ratios on a regular basis and produces a five-year capital plan semi-annually to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet our anticipated future needs. Stress tests are performed on capital ratios and include scenarios such as additional unrealized losses on the investment portfolio, additional deposit growth, loan credit quality deterioration, and potential share repurchases. For all periods presented, the Bank’s ratios exceed the regulatory definition of “well-capitalized” under the regulatory framework for prompt corrective action and Bancorp’s ratios exceed the required minimum ratios to be considered a well-capitalized bank holding company. In addition, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action as of June 30, 2026. There are no conditions or events since that notification that management believes have changed the Bank’s categories and we expect the Bank to remain well capitalized for prompt corrective action purposes.

The total risk-based capital ratio for Bancorp was 15.58% at June 30, 2026, compared to 15.25% at December 31, 2025. The total risk-based capital ratio for the Bank was 14.61% at June 30, 2026, compared to 13.90% at December 31, 2025.

The Bancorp’s and Bank’s capital adequacy ratios as of June 30, 2026 and December 31, 2025 are presented in the following tables.

Page-43

1 Except for Tier 1 Leverage Capital, the adequately capitalized thresholds reflect the regulatory minimum plus a 2.5% capital conservation buffer as required under the Basel III Capital Standards in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses.

Liquidity and Capital Resources

The goal of liquidity management is to provide adequate funds to meet loan demand and to fund operating activities and deposit withdrawals. We accomplish this goal by maintaining an appropriate level of liquid assets and formal lines of credit with the FHLB, FRBSF and correspondent banks that enable us to borrow funds as seen in the table below and discussed in Note 6, Borrowings and Other Obligations, to the consolidated financial statements in this Form 10-Q. Our Asset Liability Management Committee ("ALCO"), which is comprised of Bank directors and the Bank's Chief Executive Officer, is responsible for approving and monitoring our liquidity targets and strategies. The Bank has long-established minimum liquidity requirements that are regularly monitored using metrics and tools similar to those used by larger banks, such as the liquidity coverage ratio, and multi-scenario, long-horizon stress tests. Our contingency funding plan provides for early detection of potential liquidity issues in the market or the Bank and institutes prompt responses that may prevent or alleviate a liquidity crisis. Management monitors liquidity daily and regularly adjusts our position based on current and future liquidity needs. We also have relationships with third-party deposit networks and can adjust the placement of our deposits via reciprocal or one-way sales as part of our cash management strategy.

Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity totaled $2.177 billion or 65% of total deposits and 214% of estimated uninsured and/or uncollateralized deposits as of June 30, 2026.

Page-44

The following table details the components of our contingent liquidity sources as of June 30, 2026.

(in thousands)

1 Excludes cash items in transit.

Note: Brokered deposits available through third party networks are not included above..

We obtain funds from the repayment and maturity of loans, deposit inflows, investment securities sales, maturities and paydowns, federal funds purchases, FRB and FHLB advances, other borrowings, and cash flow from operations. Although available as a liquidity source, we have not chosen to utilize brokered deposits. Our primary uses of funds are the origination of loans, the purchase of investment securities and loans, withdrawals of deposits, maturities of certificates of deposit, repayment of borrowings, dividends to common stockholders, share repurchases and operating expenses.

Customer deposits are a significant component of our daily liquidity position. The attraction and retention of deposits depend upon the variety and effectiveness of our customer account products, service and convenience, rates paid to customers, and our financial strength. The cash cycles and unique business activities of some of our large commercial depositors may cause short-term fluctuations in their deposit balances held with us.

Our cash and cash equivalents increased $54.3 million in the first six months of 2026. The most significant sources of liquidity during the first six months of 2026 were $137.9 million from principal paydowns, calls and maturities of investment securities, loan payoffs and paydowns of $101.8 million, $40.4 million in amortization of principal, and $13.3 million in net cash provided by operating activities. In addition, there were proceeds from loan sales of $9.1 million.

Significant uses of liquidity during the six months ended June 30, 2026 were $123.6 million in loan fundings, $65.2 million in investment securities purchased, $45.6 million from net decrease of deposits, net loan line utilization of $15.1 million and $8.1 million in cash dividends paid on common stock to our shareholders. Refer to the Consolidated Statements of Cash Flows in this Form 10-Q for additional information on our sources and uses of liquidity. Management anticipates that our current strong liquidity position, as detailed in this report, and contingent funding sources outlined in the table above are adequate to support our operational needs.

Unfunded credit commitments, as discussed in Note 8 to the consolidated financial statements in this Form 10-Q, totaled $450.1 million at June 30, 2026. We expect to fund these commitments to the extent utilized primarily through the repayment of existing loans, principal paydowns of investment securities, and liquid assets.

Over the next twelve months, $151.8 million of time deposits will mature. We expect that a high percentage of these funds will remain with the Bank either through renewals or shifts to other deposit products. Any outflows can be absorbed by the Bank's excess liquidity. We believe our emphasis on local deposits, combined with our immediately available funding sources, provides a very stable base for our liquidity needs.

We had no outstanding short term borrowings under our credit facilities at June 30, 2026, and at December 31, 2025, as discussed in Note 6, Borrowings and Other Obligations, to the Consolidated Financial Statements in this Form 10-Q. We issued Fixed-to-Floating Subordinated Notes of $45.0 million with a final maturity date of December 1, 2035, during 2025, to certain investors in a private placement, to strengthen our capital ratios as part of our balance sheet repositioning, as discussed in Note 9 to the Consolidated Financial Statements. At June 30, 2026, the balance of the 2035 Notes included in the Company’s Consolidated Statements of Condition, net of debt issuance cost, was $44.0 million.

Because Bancorp is a holding company and does not conduct regular banking operations, its primary sources of liquidity are dividends from the Bank. Under the California Financial Code, payment of a dividend from the Bank to Bancorp without advance regulatory approval is restricted to the lesser of the Bank’s retained earnings or the

Page-45 amount of the Bank’s net profits from the previous three fiscal years less the amount of dividends paid during that period. Dividends in excess of that amount may be paid with prior approval of the Department of Financial Protection and Innovation ("DFPI"). The Bank received approval from the State of California - Department of Financial Protection and Innovation on May 30, 2025, for a dividend of $32.0 million which was paid to Bancorp on May 30, 2025.

The primary uses of funds for Bancorp are shareholder dividends, subordinated notes servicing, share repurchases and ordinary operating expenses. Bancorp held $24.6 million in cash at June 30, 2026, which is expected to cover cash needs through the next twelve months.

Statement Regarding use of Non-GAAP Financial Measures

Financial results are presented in accordance with GAAP and with reference to certain non-GAAP financial measures. Management believes that providing selected financial measures excluding the loss on sale of securities discussed above is useful to investors as the strategic short-term loss taken for long-term profitability makes the operational performance difficult to compare to other periods. Because there are limits to the usefulness of this or any other non-GAAP measure to investors, Bancorp encourages readers to consider its annual and quarterly consolidated financial statements and notes related thereto in their entirety, as filed with the Securities and Exchange Commission, and not to rely on any single financial measure. A reconciliation of the GAAP financial measures to comparable non-GAAP financial measures is presented below.

Page-46

Reconciliation of GAAP and Non-GAAP Financial Measures

(in thousands, except per share amounts; unaudited)

Market risk is defined as the risk of loss arising from an adverse change in the market value (or prices) of financial instruments. A significant component of market risk is interest rate risk, which is inherent in our lending, investment, borrowing, and deposit gathering activities. The Bank manages interest rate sensitivity to minimize the exposure of our net interest margin, earnings, and capital to changes in interest rates. Interest rate changes can create fluctuations in the net interest margin due to an imbalance in the timing of repricing, or maturity of assets or

Page-47 liabilities. Interest rate changes can also affect the market value of our financial instruments, such as available-for-sale securities and the related unrealized gains or losses, which affect our equity value.

To mitigate interest rate risk, the structure of our assets and liabilities is managed with the objective of correlating the effects of interest rate changes on loans and investments with those of deposits and borrowings. The Asset/Liability Management Policy sets limits on the acceptable amount of change to net interest income and the economic value of equity in different interest rate environments.

From time to time, we enter into interest rate swap contracts to mitigate the changes in the fair value of selected investment securities and specified long-term fixed-rate loans as well as firm commitments to enter into long-term fixed-rate loans caused by changes in interest rates. Refer to Note 10, Derivative Financial Instruments and Hedging Activities, to the consolidated financial statements in this Form 10-Q.

ALCO and the Board of Directors review our exposure to interest rate risk at least quarterly. We use simulation models to measure interest rate risk and to evaluate strategies to improve profitability in the context of policy guidelines. A simplified statement of condition is prepared on a quarterly basis as a starting point, using instrument level data of our actual loans, investments, borrowings and deposits as inputs. If potential changes to net equity value and net interest income resulting from hypothetical interest rate changes are not within the limits established by the Board of Directors, management may adjust the asset and liability mix to bring the risk position within approved limits or take other actions. Governing policies are subject to review by regulators and are updated to incorporate their observations and adapt to changes in idiosyncratic and systemic risks. As of June 30, 2026, interest rate risk was within the policy guidelines established by ALCO and the Board. One set of interest rates modeled and evaluated against flat interest rates and a static balance sheet is a series of immediate parallel shifts in the yield curve. Our most recent analysis of our interest rate sensitivity is provided in the following table as an example rather than an expectation of likely interest rate movements.

Interest rate sensitivity is a function of the repricing characteristics of our assets and liabilities. The Bank runs a combination of scenarios and sensitivities in its attempt to capture the range of interest rate risk including the simulations mentioned above. As with any simulation model or other method of measuring interest rate risk, limitations are inherent in the process and results are dependent on assumptions. For example, lower deposit growth than modeled may cause the Bank to increase its borrowing position, thereby increasing its liability sensitivity. Additionally, assets and liabilities may react differently to changes in market interest rates in terms of both timing and responsiveness to market rate movements. Important deposit modeling assumptions include the speed of deposit run-off and the amount by which interest-bearing deposit rates increase or decrease when market interest rates change, otherwise known as the deposit beta.

The above tables reflect deposit betas of up to 68%, averaging 41%, for rates paid on non-maturity interest-bearing deposits in rising rate scenarios. Deposit betas of up to 68%, averaging 28%, are applied to rates paid on non-maturity interest-bearing deposits in falling rate scenarios. However, deposit pricing is actively managed at the relationship level and closely monitored to balance customer needs with the bank's deposit expenses. The actual rates and timing of prepayments on loans and investment securities could vary significantly from the assumptions applied in the various scenarios. Lastly, uneven changes in different tenors of U.S. Treasury rates that result in changes to the shape of the yield curve could produce different results from those presented in the table. While not presented here, interest rate risk scenarios may also include yield curve ramps, steepening, flattening and twists.

Page-48

Accordingly, the results presented should not be relied upon as indicative of actual results in the event of changing market interest rates.

Evaluation of Disclosure Controls and Procedures

Bank of Marin Bancorp and its subsidiary (the "Company") conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934 (the “Act”)) as of the end of the period covered by this report. The term disclosure controls and procedures means controls and other procedures that are designed to ensure that information we are required to disclose in the reports that we file or submit under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Previously Identified Material Weakness

As previously reported in our Annual Report on Form 10-K filed with the SEC on March 13, 2026, we identified a material weakness in internal control over financial reporting. Management did not design and implement adequate control activities related to the accounting for and classification of certain reciprocal deposits and transactions. This material weakness resulted from ineffective controls over the accounting for and classification of reciprocal network deposits. This resulted in (i) a material misclassification of deposits within the Consolidated Statements of Condition between interest-bearing deposits and non-interest bearing deposits and (ii) an immaterial misclassification of expenses within the Consolidated Statements of Comprehensive (Loss) Income, between interest expense and non-interest expense, with no impact to net (loss) income. This required a restatement of our annual consolidated financial statements for the years ended December 31, 2024 and 2023, and our unaudited interim condensed consolidated financial statements for the quarters ended September 30, 2025, June 30, 2025, March 31, 2025, September 30, 2024, June 30, 2024, and March 31, 2024. While only the statement of condition misclassification was significant enough to result in the material misstatement, management chose to revise the statement of comprehensive (loss) income as well for the affected periods in order to provide a more complete picture.

Remediation Plan for the Material Weakness

Since identifying the material weakness, management, under the oversight of the Audit Committee has taken the following steps to remediate this deficiency. The Company continues to execute on its remediation plan, which includes controls to:

• Enhance risk assessment procedures over reciprocal deposit networks to identify whether additional control activities are needed to conform to our accounting policies;
• Increase involvement of technical accounting resources for complex areas at initial onboarding and for periodic review; and
• Require formal documentation of technical conclusion and evidence of supervisory oversight for third party reciprocal deposit networks.

Changes in Internal Control over Financial Reporting

Other than the remediation efforts described above, during the quarter ended June 30, 2026, there were no significant changes that materially affected, or are reasonably likely to affect, our internal control over financial reporting. The term internal control over financial reporting, as defined by Rule 15d-15(f) of the Act, is a process designed by, or under the supervision of, the issuer's principal executive and principal financial officers, or persons performing similar functions, and affected by the issuer's board of directors, management and other personnel, to

Page-49 provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control. In evaluating an investment in Bancorp's common stock, investors should consider, among other things, the risks previously disclosed in Part I, Item 1A, "Risk Factors" of our 2025 Form 10-K, and the information contained in this quarterly report on Form 10-Q and other reports and registration statements filed with the SEC, which are incorporated herein by reference. There have been no material changes to the risk factors disclosed in our 2025 Form 10-K.